CPI inflation slowed to 3.6% in October, down from 3.8% in the previous three months, the latest ONS data shows.
This supports the Bank of England's latest predictions that inflation has now hit its peak, down from a previous forecast of 4% in the second half of 2025.
The Bank of England's Monetary Policy Committee voted to hold Bank Rate at 4% in a narrow 5-4 split earlier this month. Four members voted to reduce Bank Rate by 0.25%, to 3.75%.
With inflation now falling, industry experts predict we could see a cut to Bank Rate in the Committee's December meeting, with markets still pricing in another rate cut before the end of the year.
However, analysts agreed that this largely depends on the tax measures announced in next week's Autumn Budget.
Peter Stimson, director of mortgages at MPowered, commented: “Next week’s Budget is now the only barrier to a December base rate cut.
“The Bank of England’s prediction that inflation would peak in September has proved spot on, and October’s fall in CPI was bang on expectations.
“At 3.6%, CPI is still well above the Bank’s 2% target, but the direction of travel matters more. With wage growth cooling, the inflationary pressure is easing and headline inflation should gradually tick down further.
“This gives the Bank’s Monetary Policy Committee a free hand to cut its base rate to below 4% when it meets next month. With the UK’s economic growth slowing and nearly half of the committee voting for a rate cut in November, a December cut now looks a racing certainty - provided the Budget doesn’t throw a spanner in the works."
Derrick Dunne, CEO of YOU Asset Management, agreed: “A fall in the rate of inflation today is excellent news for a number of reasons, not least of all it indicates rate cuts are coming to ease pressure. The reality is the economy now has a triumvirate of signals that indicate it is ready for rate cuts: loosening employment, faltering growth and now cooling price rises.
“The stars are one by one aligning for a December cut. The boil now appears to be coming off price rises and the Bank of England’s discipline on not cutting too quickly has been rewarded. In particular the fall in energy prices should be a positive signal that cost pressures are easing on both households and businesses.
“With fiscal tightening due in next week’s Budget, there can be little in the way now of new rate cuts – bar a surprise inflationary tax hike from the Chancellor. Considering her messaging in a recent press conference, this seems highly unlikely.
“The run up to the fiscal event has been an extraordinarily nervous one for households and businesses alike. With confidence and investment sapped by the uncertainty, no matter what the decisions are it should bring some relief – and hopefully certainty – that will let families and companies begin making important decisions that have been held back."
Charlie Ambler, co-chief investment officer at wealth management firm Saltus, said: “Since the Bank of England signalled earlier this month that inflation has now peaked, expectation of an interest rate cut in December has been building. While inflation is still well above the 2% target, falling to 3.6% in October, the Bank is unlikely to abandon its slow and steady rate cutting cycle, which largely hangs on controlling services inflation and wage pressures.
“Future rate decisions will also be heavily informed by the reforms unveiled in the Autumn Budget, with the Chancellor expected to announce a wave of tax hikes. While some rumoured reforms have been quashed, such as cutting the tax-free pension lump sum limit, constant speculation has impacted investor behaviour and highlights how stability is the key to unlocking growth. The economic environment remains challenging, with public finances under pressure and sluggish growth figures dampening confidence in the economy."
Lindsay James, investment strategist at Quilter, added: “Although the direction of travel is improving, the wider economic backdrop remains fragile. Growth has been subdued all year, and the labour market is now cooling at a faster pace. The economy is clearly at a point of significant risk as we move towards 2026. With quarter on quarter growth successively weakening through 2025, incoming significant tax hikes on both corporates and individuals could snuff out remaining limited optimism. Amidst rising unemployment, ill thought-out plans to target the tax relief on offer from salary sacrifice pensions not only store up greater problems for the future but also make workers even more expensive for companies who have already been hit hard by hikes to National Insurance and the minimum wage.
"With the Budget now seemingly at risk of missing already low expectations, economic growth seems likely to come under further pressure. The flipside to this is that persistently above-target inflation may come down earlier than expected, ushering in larger rate cuts in its wake. Markets had already been pricing a strong 80% likelihood of an interest rate cut in December. Today’s data reinforces the view that inflation is now on a clearer downward trajectory and that the Bank of England will have scope to continue easing policy.
“However, the return of inflation towards target is as much a reflection of slower activity as it is of any meaningful improvement in the supply side of the economy. While falling inflation provides some relief for households, it also highlights the challenge of generating stronger, more sustainable growth. Any rate cuts delivered in the coming months will be responding to an economy that is still struggling to build momentum.”
